There are many arguments for an antitrust review of the Schwab-TD Ameritrade deal.
For one, Schwab is the market leader in safeguarding assets managed by registered investment advisers, holding about half the market. By purchasing TD Ameritrade, it would add another 15% to 20% share, according to a note from Keefe Bruyette & Woods. The deal also could allow Schwab to boost fees on other services, or reduce interest paid to investors on their accounts. Effectively, the company eliminated commissions for U.S. stocks, ETFs and options, but that headline-grabbing move could very well mask hidden charges elsewhere.
Bloomberg News’s Felice Maranz and David McLaughlin compiled a
While the potential hurdles are very real and Wall Street’s concern about them are valid, I’d add another concern: namely, that combining Schwab and TD Ameritrade could be considered “anti-trust” in a different way.
One of Schwab’s main competitors, Fidelity Investments, was quick to release a statement on Monday that piggybacked on some of these concerns, noting that "acquisitions of this size can be long, complex, and unsettling.” Kathy Murphy, president of Fidelity’s Personal Investing business, added this:
“Unfortunately for investors, the combination of Charles Schwab and TD Ameritrade means they will likely be doubling down on revenue practices that directly disadvantage investors, including paying extremely low cash sweep rates and taking significant payment for order flow. These practices can easily outweigh any benefit of $0 online commissions.”
Schwab’s path forward most likely lies in expanding its reach in financial advisory services. That’s a highly personal industry by nature. Sure, some people are willing to take financial planning into their own hands, or use algorithms to help them invest. But even with the internet democratizing all aspects of society, it still feels like the average person would want to have someone holding their hand as they lay out a strategy to buy a house, or send children to college, or save most efficiently for retirement. When it comes to bond markets, for instance, it’s clear that a good chunk of investors don’t have a good handle on
Walt Bettinger, Schwab’s CEO, said in a statement that the combined firm will “be uniquely positioned to serve the investment, trading and wealth management needs of investors across every phase of their financial journeys.” It’s an open question, though, whether Americans prefer to use a massive institution as a one-stop shop. As Cowen’s Seiberg pointed out, there’s something of a growing “anti-big business” sentiment focused on large banks and technology companies. Schwab would seem to be the cross-section of both of those targets.
Many details on Schwab’s acquisition and the potential synergies are still to come. But industry consolidation and the growing emphasis on technological innovation will clearly put increased pressure on its small and mid-sized competitors. For those firms, “the risk is that they lose market share, including in smaller communities where more personal brick-and-mortar financial services are harder to come by,” according to Bankrate.com senior economic analyst Mark Hamrick.
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If successful, this combination will almost surely bring more investors under Schwab’s tent. It’s up to the company to convince them that even as an industry giant, it’ll always keep the little guy in mind.
